CPCU 410 Flashcards – Module 9

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[h] CPCU 410 – Module 9

[q] Financial market

[a] A market used for trading securities.

[q] Types of securities traded in financial markets

[a] Securities include:




Consumer credit.

Government debt.

[q] Money market

[a] A market in which short-term securities are traded.  Securities mature in one year or less.

[q] Capital market

[a] A market in which long-term securities are traded.

[q] Primary market

[a] A market that deals with the issuance and sale of securities to investors directly by the issuer.

[q] Types of primary markets

[a] Types:

Direct search.




[q] Direct search market

[a] A type of primary market in which participants find their own trading partners.

[q] Broker market

[a] A type of primary market in which participants find trading partners through the use of agents.

[q] Dealer market

[a] A type of primary market in which participants trade with dealers who hold themselves out as buyers and sellers.

[q] Auction market

[a] A type of primary market in which participants compete against other investors through an intermediary.

[q] Secondary market

[a] A market for investors to buy and sell securities that have been previously issued.

[q] Market depth

[a] A market’s ability to sustain relatively large market orders without much impacting the price of the security.

[q] Market breadth

[a] A ratio that compares the total number of rising stocks to the total number of falling stocks.

[q] Financial intermediary

[a] An entity that acts as the middleman between two parties in a financial transaction.

[q] Benefits of financial intermediaries

[a] Benefits:

Matching of parties with disparate needs.

Purchase and sale of a variety of securities.

Providing a wide range of denominations.

Claims produced by intermediaries are often more liquid than stocks issued by companies.

[q] Commercial bank

[a] A type of financial intermediary that accepts deposits from savers and makes varying types of loans.

[q] Investment bank

[a] A type of financial intermediary that facilitates the purchase of securities by investors.

[q] Investment company

[a] A type of financial intermediary that manages mutual funds and other investments.

[q] Risks faced by financial institutions

[a] Risks:

Credit risk.

Liquidity risk.

Market risk.

Interest rate risk.

Pricing risk.

[q] Credit risk

[a] The risk that debtors fail to repay their outstanding debt.  Also known as counterparty risk.

[q] Liquidity risk

[a] The risk that an asset cannot be sold quickly without incurring a loss.  Also, represents the risk that an organization will have insufficient cash to satisfy its current obligations.

[q] Market risk

[a] The possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets.

[q] Interest rate risk

[a] The risk that the value of an investment will decline due to interest rate changes.

[q] Pricing risk

[a] The potential for a change in revenue or expenses resulting from an increase or decrease in the price of a product or an input.

[q] Systemic risk

[a] The potential for a major disruption in an entire market.  These risks are generally nondiversifiable.

[q] Fintech

[a] Any innovation that combines finance and technology.

[q] Insurtech

[a] The insurance industry’s use of emerging technology.

[q] Big data

[a] Data that is too large to be gathered by traditional methods.

[q] Data capture

[a] The use of smart products to gather data.

[q] Blockchain

[a] A virtual ledger that is dynamically updated.  Facilitates secure transactions without the need for a third party.

[q] Cloud computing

[a] A method of storing data from remote locations, using the internet or another network.

[q] Artificial intelligence

[a] The ability of machines to simulate human intelligence.  Enables computers to complete tasks that require critical thinking.

[q] Internet of Things

[a] A network of objects that transmit data without intervention by humans.

[q] Telematics

[a] Use of devices in vehicles with wireless communication and GPS tracking that transmit data.  Can report information about a driver’s speed and distance, as well as braking patterns.